Carpe Diem

Stock Market Investing: Some Words of Wisdom

With all of the turmoil and uncertainty about the stock market, here six good quotes from Warren Buffet:

1. The future is never clear, and you pay a very high price in the stock market for a cheery consensus. Uncertainty is the friend of the buyer of long-term values.

2. The most common cause of low prices is pessimism – sometimes pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It’s optimism that is the enemy of the rational buyer.

3. Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.

4. Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.

5. The stock market is designed to transfer money from the active to the patient.

6. If you don’t feel comfortable owning something for 10 years, then don’t own it for 10 minutes.

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Retail Clinics Outperform MDs for Minor Illnesses

No state has more experience with retail clinics than Minnesota, the birthplace nearly eight years ago of MinuteClinic, which still dominates the field even as competitors crowd in. An independent, nonprofit coalition of doctors, insurers, consumers, and employers called MN Community Measurement annually rates health clinics’ and doctors’ practices statewide.

The most recent report card from the group, based on data from 2006, awarded MinuteClinic the highest marks in Minnesota for treating children 2 to 18 years old for sore throats, giving it a score of 99%. The lowest grade: 26% for a doctors’ group.

Quoted from today’s Boston Globe article “Upbeat Diagnosis for Clinics,” following up on the controversy in Massachusetts about CVS planning to open dozens of medical clinics. More here:
Mayor Thomas M. Menino of Boston and other critics have warned of inferior care driven by an unquenchable profit motive. He and others predicted that in the name of convenience, patients would sacrifice an ongoing relationship with a doctor.
But interviews with a dozen independent researchers, insurers, and regulators in other states painted a far more positive portrait. Increasing evidence, they said, suggests that when patients are treated for sore throats and other minor illnesses at retail clinics, the care may actually be as good as – if not better than – in more traditional doctor offices.
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Forget Election-Inspired Makeshift Rebate Goodies

From today’s San Diego Tribune, “New Incentives, Not Fiscal Stimulus, Are the Best Way to Bolster a Slowing Economy”:

The bottom line on fiscal stimulus to stave off or ameliorate a recession is this: None is needed for that purpose that wouldn’t be good policy under more normal circumstances. Low marginal tax rates on income, capital gains and dividends are always good policy and largely pay for themselves by stimulating economic activity. They need to be lower, but the first urgent priority is to avoid making them higher by letting the Bush tax cuts expire and to make that clear as soon as possible to end the uncertainty.

Corporate tax rates should be lowered at least to the level of those of our trading partners and lower still if we can get our minds around the fact that corporations don’t pay taxes, people do.

Eastern European countries are way ahead of us in fundamental tax reform as they implement flat, low income taxes. Do we have to sink to their previous levels before we have the courage to implement fundamental reform? When will we learn that what is taxed is destroyed; so taxes on consumption that exempt saving is key to continued dynamic income expansion. We don’t need election-inspired makeshift rebate goodies from Washington under the guise of economic stimulus. We need to get real with fundamental reform worthy of this great nation.

~Bob McTeer, former president of the Federal Reserve Bank of Dallas

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Government Policy Got Us Into the Subprime Mess

From Walter Williams’ column today “Subprime Bailout“:

As with most economic problems, we find the hand of government. The Community Reinvestment Act of 1977, whose provisions were strengthened during the Clinton administration, is a federal law that mandates lenders to offer credit throughout their entire market and discourages them from restricting their credit services to high-income markets, a practice known as redlining. In other words, the Community Reinvestment Act encourages banks and thrifts to make loans to riskier customers.

The Bush bailout plan for the subprime crisis is a wealth transfer from creditworthy people and taxpayers to those who made ill-advised credit decisions, and that includes banks as well as borrowers. According to Temple University professor of economics William Dunkelberg, 96% of all mortgages are being paid on time. Thirty percent of American homeowners have no mortgage. Delinquency rates were higher in the 1980s than they are today. Only 2 to 3 percent of all mortgages are in foreclosure. The government bailout helps a few people at a huge cost to the rest of the economy.

Government policy got us into the subprime mess and government’s measure to fix the mess is going to create more mess.

Carpe Diem

Milton Friedman vs. Hillary Clinton

From Thomas Kuper at Human Events: “I thought it would be interesting to do a compare and contrast between a champion of the free market (Milton Friedman) versus a champion of government (Hillary Clinton).” Here are a few examples:

“The unfettered free market has been the most radically destructive force in American life in the last generation.”

~First Lady Hillary Clinton in 1996 stating her troubles with the free market

“What most people really object to when they object to a free market is that it is so hard for them to shape it to their own will. The market gives people what the people want instead of what other people think they ought to want. At the bottom of many criticisms of the market economy is really lack of belief in freedom itself.”

~Milton Friedman, Wall Street Journal, May 18, 1961

“Too many people have made too much money.”

~First Lady Hillary Clinton condemns the insurance industry, feeling it’s not fair that certain businesses are making ‘too much money’

“‘Fair’ is in the eye of the beholder; free is the verdict of the market. The word ‘free’ is used three times in the Declaration of Independence and once in the First Amendment to the Constitution, along with ‘freedom.’ The word ‘fair’ is not used in either of our founding documents.”

~Milton Friedman, WSJ, Mar. 7, 1996

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Has the Dollar Bottomed Out?


From the International Herald Tribune: “Has the dollar bottomed out?”

“Foreigners are buying American assets at cut-rate prices. To make their purchases, foreigners need dollars; more demand for dollars pushes the exchange rate higher. And, according to some important measures of the dollar’s value, the greenback may have hit bottom over two months ago.”

More evidence: The USD is now selling at a one-year forward premium against almost two dozen currencies, see chart above, including almost a 2% forward premium vs. the British Pound, and almost a 1% premium vs. the Euro.

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UK’s National Health Care=Third World Dental Care

From the UK Telegraph “Bad Teeth – The New British Disease“:

In Britain today, you can stuff yourself on deep-fried Mars bars, drink 20 pints of beer a night, inject yourself with heroin, smoke 60 cigarettes a day or decide to change your sex — and the National Health Service (NHS) has an obligation to treat you. You might go on a waiting list, but it will do its best to cure your lung cancer, patch up your nose after a drunken brawl or give you a hip replacement.

But if you have bad teeth, forget it. You may be rolling on the bathroom floor in agony with an abscess, your gums may be riddled with disease, or people may recoil at the sight of your fangs as you walk down the street, but the NHS doesn’t have to help you.

It is now virtually impossible for many people to find an NHS dentist, and if they do manage to squeeze on to a list, they could still be charged 80% of the cost of treatment. A recent survey found that seven and a half million Britons have failed to gain access to an NHS dentist in the past two years (UK population = 60 million). In one quarter of the country, no NHS dentists are allowing new patients to join their lists. And despite government targets that every child should have his teeth seen by an expert every year, more than one in three children never see an NHS dentist.

Now because of our first-world diets and third-world dental care, we have 19th-century teeth.

According to today’s related IBD editorialLike so many British teeth, national health care systems are rotten.” (Note: The IBD editorial mistakenly reported that “2.7 million Britons have gone nearly two years without dental work. It should be 7.2 million.)


Here’s another article “
7 million patients can’t find a dentist.”
Carpe Diem

Largest-Ever Stock Subscription in Global History

MUMBAI — Reliance Power Ltd.’s 117 billion rupee ($2.98 billion) initial public offering has been set at 450 rupees a share, company Chairman Anil Ambani said.

India’s largest capital raising closed to record subscriptions as investors submitted bids valued at more than 7.5 trillion rupees. Demand for the issue, which was open for subscriptions between Jan. 15 and Jan. 18, exceeded supply by 72.9 times.

This is the largest-ever subscription in the history of global capital markets. It received applications from more than five million retail participants,” Mr. Ambani said.

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Unintended Consequences:Do-Good Laws Often Fail

From “Economics: Public and Private Choice” by Gwartney, Stoup, Sobel and Macpherson:

Pitfall #2 to Avoid in Economic Thinking: “Good intentions do not guarantee desirable outcomes.”

In a Sunday NY Times article “Unintended Consequences,” Freakonomics authors Steven Levitt and Stephen Dubner explain why “do-good” laws often fail:

1. The Endangered Species Act is actually endangering, rather than protecting, species.

2. The Americans with Disabilities Act, enacted in 1992, has led to a sharp drop in the employment of disabled workers.

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Export Sector is 2X As Big as the Housing Sector

Wall Street Journal: Robert Gordon, an economist at Northwestern University in Illinois who is also a member of the National Bureau of Economic Research committee that determines (usually long after the fact) when recessions begin, is hopeful that overseas growth may continue to bolster the U.S. economy. He notes that exports, which have been growing rapidly and account for more than twice as large a share of GDP as home construction does, will continue to post strong growth, easing the pain of the housing decline.

The chart above (click to enlarge) using BEA data (via the St. Louis Fed) verifies what Robert Gordon is saying: The export sector of the U.S. economy is more than twice as large as the residential housing market, and continued strong export growth will help absorb some of the weakness in the much smaller housing sector.

Exports in 2007 were up by 55% from 2003, the strongest 4-year period of export growth since 1991; and from November 2006 to November 2007, exports of goods increased by almost 14% and service exports increased by 11.4%. The strong economic growth forecast for 2008 in countries like India (8.4%), China (10%), Vietnam (8.2%), Russia (6.5%), should continue to provide strong demand for U.S. exports, and help offset the sluggish growth expected here.